On-screen text:
Housing
- Affordability strains
- Data out this week
- GDP-housing disconnect
Narrator: Housing affordability is down, but somehow the economy keeps growing.
So we get a lot of housing data this week. Everything from homebuilder sentiment to building permits to housing starts. Now I really want to focus on affordability because we just saw 30 year mortgage rates go up to 7.5%. This has really called into question how the housing cycle can really get up and going again, if you continue to see these levels of unaffordability. And unfortunately, it doesn't look like that cycle is coming soon.
Animation: Chart shows Atlanta Fed home ownership affordability monitor, which uses 30% of overall expenses as a baseline for home ownership affordability. Chart shows the current monitor hovering around 44% of income needed to buy a home at the median home price in the United States.
Narrator: If we look at the metrics that the Atlanta Fed tracks when it comes to homeownership costs, but also median income, you will see that we are well into unaffordable territory, meaning more than 30% of median income is needed to cover the costs of owning a home.
Now, if we look at this in another way, you could see a huge gap between what the median income today is in the United States, which is just above $80,000, and what the median income would need to be if you were in what is considered affordable territory, which is above $140,000. So it continues to drive this really big wedge between what the real economy is doing, which is growing if we're looking at something like gross domestic product, but then what housing is doing, which is continuing to fall. Residential investment within GDP has really been in this almost secular decline now for several years.
So it's not that housing doesn't matter for the economy, it's just that there are other drivers in this cycle that have become a lot more powerful and that have, frankly, overpowered housing.